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  5. AQN: Hi 5i, can I have your current view on the market with respect to inflation, interest rates (inverted yield curve) and recession chances. [Algonquin Power & Utilities Corp.]
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Investment Q&A

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Q: Hi 5i, can I have your current view on the market with respect to inflation, interest rates (inverted yield curve) and recession chances. I realize markets are forward looking and I'm trying to guage future rate increases as I have a few quarters of dividends to spend on income stocks. Oh, and what would be your top three dividend stock picks now? Was looking at SLF, BNS and AQN, but based on your answer to first part, I may hold off.

Thx

Asked by Christopher on July 19, 2022
5i Research Answer:

The Fed and Bank of Canada are highly determined to bring down inflation through rate increases, and this is evident by the rapid pace of recent rate hikes. We feel that the biggest downfall to North American economies would be sustained high inflation, and so ensuring that this is brought down to appropriate levels is the correct action. We believe that rates will rise over the next few months and we will likely see rate increases diminish (75 or 100 basis points, then a 25 or 50 basis point hike, then 25 bps, then pause). The economy is likely to head into a recession (or already be in a recession). The market is pricing in all of these factors, and we believe that the market is accurately reflecting these economic headwinds. We believe that inflation will moderate into 2023, interest rate hikes will be paused sometime in Q3 or Q4 of this year, and a recession to last until Q1 or Q2 of 2023. The markets typically bottom before the recession is officially announced and so buying before or slightly after the recession has been announced has historically represented a good buying opportunity.

For dividend stocks, we like SLF, BNS, and ENB. While we like AQN, we prefer the stability of ENB.